Correlation Between Designer Brands and CF Industries

Can any of the company-specific risk be diversified away by investing in both Designer Brands and CF Industries at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Designer Brands and CF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Designer Brands and CF Industries Holdings, you can compare the effects of market volatilities on Designer Brands and CF Industries and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Designer Brands with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Designer Brands and CF Industries.

Diversification Opportunities for Designer Brands and CF Industries

0.11

Correlation Coefficient

Designer Brands  CF Industries

Average diversification

The 3 months correlation between Designer and CF Industries is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings and Designer Brands is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Designer Brands are associated (or correlated) with CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of Designer Brands i.e., Designer Brands and CF Industries go up and down completely randomly.

Pair Corralation between Designer Brands and CF Industries

Considering the 90-day investment horizon Designer Brands is expected to generate 1.8 times less return on investment than CF Industries. In addition to that, Designer Brands is 2.15 times more volatile than CF Industries Holdings. It trades about 0.09 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.36 per unit of volatility. If you would invest  8,485  in CF Industries Holdings on October 24, 2024 and sell it today you would earn a total of  1,216  from holding CF Industries Holdings or generate 14.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Designer Brands  vs.  CF Industries Holdings

Designer Brands

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Designer Brands are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental drivers, Designer Brands may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CF Industries Holdings

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Designer Brands and CF Industries

The main advantage of trading using opposite Designer Brands and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Designer Brands position performs unexpectedly, CF Industries can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CF Industries will offset losses from the drop in CF Industries' long position.

The idea behind Designer Brands and CF Industries Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.